Vanguard to use blockchain technology to simplify index data sharing

Related Categories

Fund manager Vanguard is to use a platform based on blockchain technology to automate delivery of certain index data.

It was encouraged to do so after successfully testing the data sharing process, a collaboration with the Center for Research in Security Prices (CRSP) and Symbiont, a provider of platforms for institutional applications of blockchain technology.

Under the pilot, CRSP had over the last several months distributed daily index data to Vanguard through Symbiont’s blockchain platform, Vanguard said in a statement.

Delivering the data via a blockchain and automating workflows with smart contracts had expedited data delivery, eliminated the need for manual updates, and reduced risks, it added.

A key component of blockchain technology, a smart contract is a self-executing set of instructions.

The partnership between the three organisations will enable index data to move instantly between index providers and market participants over one decentralised database, Vanguard said.

“Using this platform, investment managers will be able to instantly distribute, receive, and process index data, resulting in better benchmark tracking and significant cost savings that potentially results in better returns for our clients,” said Warren Pennington, a principal in Vanguard’s investment management group.

Currently, index data transmission, which is essential to many operations within the financial services industry, including portfolio construction and strategy execution, relied on multiple parties and distribution channels to reach investment professionals, Vanguard said in its statement.

A spokesman for the fund manager told IPE it would use the platform early next year for products tracking CRSP indices. Vanguard manages 17 such funds in the US, including Vanguard Total Stock Market Index Fund, which has $650bn (€551bn) in assets under management.

“True to the spirit of blockchain’s decentralised system, this platform will be available to all buy-side institutions so that all investors, and not one single firm, can benefit from more efficient capital markets,” said the spokesman.

He was unable to provide any figures on the estimated level of cost savings.

FCA ‘alive’ to blockchain opportunities, risks

Meanwhile, the UK’s Financial Conduct Authority (FCA) has described the feedback it received on a discussion paper about distributed ledger technology (DLT). DLT is sometimes used as an alternative term for, or to describe, blockchain.

Respondents to the regulator’s paper expressed particular support for the FCA maintaining a “technology-neutral” approach to regulation, the FCA said.

The feedback also suggested that current FCA rules were flexible enough to accommodate the use of DLT by regulated firms and no changes to specific rules were proposed.

Many respondents suggested that DLT solutions could deliver regulatory requirements more efficiently than current systems, substantially reducing costs for firms and regulators alike.

The FCA said it would continue to monitor DLT-related market developments and keep its rules and guidance under review in the light of those developments.

Christopher Woolard, executive director of strategy and competition at the FCA, said: “The original paper opened a discussion about DLT and the volume and breadth of responses we received from the industry demonstrates the significance of this issue.

“DLT has the potential to transform practices across a number of markets, sharpening competition and improving risk management. At the same time we have to be alive to the risks of certain applications of it.”